Economic Growth

By McConnell Brue Flynn and Robert Sexton

ECONOMIC GROWTH
It is usually measured by the annual
percentage change in real output of
goods and services per capita, reflecting
the expansion of the economy overtime.

Economic Growth
It is the increase in the capacity of an
economy to produce goods and services.

Technology can increase the economy's

production capabalities.

 an increase in aggregate demand

an increase in aggregate supply (productive
capacity)

Economic growth is
caused by two main
factors:

AD can increase for the following reasons:

*Lower interest rates

*Increase wages
*Increase Government spending
*Lower income tax
AS can increase for the following reasons:
*Increase capital
*Increase in labour productivity
*Technological improvements

Economic Growth

A nation with greater economic growth will end up

with a much higher standard of living, ceteris
paribus.

It means the other conditions remaining the

same.
shorter hours of labor will, ceteris paribus,
reduce the volume of output"

Economic Growth

There is a formula called the Rule of 70 that can tell

how long will it take a nation to double its output.

Number of years =

70

annual % of growth rate

Economic Growth and the Shifting

Production of Possibilities Curves

Improvements and greater stocks of land, labor, and

capital can shift out the production possibilities
curve.
Another way of saying that economic growth has
shifted the production possibilities curve out is to
say that growth has increased potential output.

Economic Growth and the Shifting

Production of Possibilities Curves

Capital Goods

Consumer
Goods

Determinants of Economic Growth

Supply factors

Increases in quantity and quality of natural resources

Increases in quality and quantity of human resources
Increases in the supply (or stock) of capital goods
Improvements in technology
Demand factor

Households, businesses, and government must purchase the economys expanding

output

Efficiency factor

Must achieve economic efficiency and full employment

Determinants of Economic Growth

Natural Resources
Important to countries: without them, countries must import the
resources they need (costly)
If a country has many natural resources, it can also trade them
with other countries and make money for the economy
Human Capital
Human capital includes education, training, skills, and healthcare of the
workers and the value that they bring to the countrys economy
Examples: computer/reading/writing/math skills, talents in
music/sports/acting, ability to follow directions, ability to serve as
group leader & cooperate with group members

Capital Goods
All of the factories, machines, technologies, buildings, and property
needed by businesses to operate
Ex: tools, equipment, factories, technology, computers, lumber, machienery, etc.

Determinants of Economic Growth

Entrepreneurship
People who take the risk to start and operate a business are called
entrepreneurs
These people risk their own money and time because they believe their
business ideas will make a profit
Entrepreneurs must organize their
businesses well for them to be successful They bring together natural,
human, and capital resources to produce foods or services to be provided
by their businesses
How does Entrepreneurship Influence Economic Growth?
Entrepreneurship creates jobs and lessens unemployment
Encourages people to take risks, and in doing so, they create
better healthcare, education, & welfare programs
The more entrepreneurs a country has, the higher the countrys
GDP will be.

How can we increase economic growth in the future?

As more people are employed, the amount of capital increases, education levels
increase, the quality of capital changes, or the technology increases, the
productive capacity of the economy increases.
Increased labor force participation increases output
Improved education creates more productive workers.

Business and government spending on research and development enhance our

abilities to produce and allow each worker to become more productive,
increasing incomes for all.
To achieve a higher level of GDP in the future, consumers need to limit
consumption spending and increase savings today, permitting businesses to
invest more in capital goods.

Raising the Level of Economic Growth

Some scholars believe that the importance of research and
development (R&D) is understated.
can include

new products,
management improvements,
production innovations, or
simply learning by doing

Raising the Level of Economic Growth

If the government is not enforcing property rights, the
private sector must respond in costly ways that stifle
economic growth.
Free Trade can lead to greater output because of the
principle of comparative advantage.
Education, investment in human capital, is just as important
as improvements in physical capital.
Accepting a reduction in current income to acquire
education and training can increase future earning ability,
which can raise the standard of living.

Raising the Level of Economic Growth

Since children in developing countries are an important
part of the labor force at a young age, there is a higher
opportunity cost of education in terms of forgone
contribution to family income.
Education is a consequence of economic growth,
becoming a consumption good, as well as a cause of
economic growth, creating human capital.

Population and Economic Growth

The impact of population growth on per capita economic growth is far from obvious.
If population were to expand faster than output, per capita output would fall; population
growth would be growth-inhibiting.
With a greater population comes a greater labor force.
Economies of large scale production may exist in some forms of production, so larger
markets associated with greater populations lead to more efficient-sized production
units.
In many of the less-developed countries today, rapid population growth threatens
sustained economic growth.
These are countries that have low land-labor ratios and are predominantly agricultural
with very modest natural resources, especially land.

Impediments of Economic
Development
Resources
Infertile land and inadequate supplies of natural resources
Human Capital
Lack of trainings and/or experiences for the citizens
Lack of educated workforce
Poor health of the citizens
Population Growth
One of the central problems of economic development

Impediments of Economic
Development
Infrastructures
Absence of a dependable infrastructure can impose severe barriers
to economic development.

http://www.slideshare.net/HeatherP/four-factors-of-economic-growth-10375773

http://www.econedlink.org/lessons/docs_lessons/409_how_can_we_increase_econo
mic_growth_in_the_future1.htm
http://www.mcneileconomics.com/uploads/8/1/3/9/8139463/briefmac_chap05.docx

Sources